Year End Tax Updates

Despite 2023 being uneventful in the context that none of the extenders have been addressed, there are still numerous year-end tax issues that impact a small business owner.

First things first, we start with the two favorites of the small business community:

• Bonus Depreciation: Yes, it’s still available in a scaled-down version, from 100% in 2022 to 80% in 2023.  Nevertheless, the immediate deduction of 80% of  2023 equipment purchases is still an immediate, powerful tax savings tool.

  It should be noted that this write-off is scheduled to continue to decrease by 20% until phased-out. It should also be noted that the reinstatement of this tax break has also been on Congress’ radar since mid-year. There’s still a chance that full bonus depreciation will be restored with year-end, last second legislation.
  

• Small Business Income Deduction: This powerful tax break is still around in 2023 and allows a self-employed or small business owner to write-off 20% of the qualified net income from small business pass-through companies.  This tax break is in effect through 2026, unless made permanent.

1099-K Reporting- Small Business Owners Get a One-Year Reprieve: Many small business entrepreneurs receive payments from third party online platforms such as Venmo, PayPal, eBay, Airbnb and Etsy. 2023 was the target year for reporting these payments to the IRS. This reporting has been pushed back to 2024, and the threshold for reporting will start at $5,000 instead of $600.

The net result for 2023 is that reporting will not be required of third-party vendors unless the small business owner received over $20,000 and has more than 200 transactions in 2023. IRS Notice 2023-74

Annual Gift Limits: Each person can annually gift another person up to $17,000, if married it doubles to $34,000 annually, without cutting into the lifetime estate and gift exclusion of $12,920.000. 

Is there a tax if I exceed $17,000 for any one person? No. It simply means that the excess reduces your lifetime exclusion, and you may have to file a gift tax return reporting the gift.   

Does the annual $17,000 limit apply to all gifts in total?  No. The $17,000 is per recipient. Remember, the recipient isn’t taxed on receiving the gift.

Employee Credit Retention Withdrawal: The IRS recently announced a new ERC claim withdrawal process for those who filed an ERC claim and are concerned about its accuracy. The new process lets certain businesses withdraw their claims to avoid getting a refund for which they're ineligible.

Withdrawn claims will be treated as if they were never filed and waive penalties or interest. The following link addresses this process:  https://www.irs.gov/newsroom/help-for-businesses-steps-for-withdrawing-an-employee-retention-credit-claim